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    Raport Raport Document Transcript

    • A new era Accelerating toward 2020 — An automotive industry transformed
    • Contents The transformations to come 1 The restructuring imperative 2 Changing customers, changing demands 8 Technology to reflect new sets of demands 15 Getting the right skills 22 The next chapter in industry history 26 Endnotes 28
    • The transformations to come At least now, the picture is clear each will rely on higher volume global platforms For the past few years, automotive leaders and supported by networked design centers in key observers have witnessed an industry in peril. A emerging markets. slowing global economy, coupled with declining consumer confidence, has translated into dismal An era of “conscious consumption” will emerge. new car sales in most markets. Customers around the world will be more cost conscious, especially in the developing world where But the slump has masked many outstanding millions of drivers will make their first ever car purchase. industry advancements. Standards of quality and productivity, for example, have been raised without Environmental considerations will also weigh heavily a corresponding increase in price. Cars today are on the industry towards 2020. The fierce race to safer, more fuel efficient, and more technically develop and produce electric vehicles, spurred by advanced than ever. And, the automotive workplace both customer demand and government incentives, has evolved from an image of “dark, dirty and will mean that up to a third of all cars purchased in dangerous” to an environment of high skills, developed countries in 2020 will not be propelled by advanced technologies, and dynamic change. an internal combustion engine. Despite this, competitive and financial pressures This technological imperative will escalate an already have led to a number of high-profile bankruptcies. intense war for talent by 2020. The workforce of the Production utilization in North America, Western future will not only need more complex skill sets but Europe, and Japan has dropped dramatically leading to will also need to be flexible so that companies can widespread job losses. Even with discounts and other employ them most productively. At every level, a more purchase incentives, consumers, wary of an uncertain proactive approach to training will be implemented, economic future, have yet to return to the showroom as part of a more progressive and comprehensive without extraordinary government incentives. approach to talent management. The challenge to attract highly skilled workers will be especially acute So, what will be the shape of the automotive in developed markets. Emerging markets, with their industry as the world emerges from the economic younger demographics and plentiful engineering talent, downturn? In this report, Deloitte Touche Tohmatsu’s will pick up the slack left by the talent shortage. senior automotive leaders offer a perspective on the structural changes and major customer, technology, What must not be lost in any of this is the increasing and people trends expected to transform the role of government. Governments in all major industry over the next decade. markets have become active industry players. Their investments through emergency loans and incentive A massive shift in the competitive landscape will packages will have a lasting impact on the industry’s see China and India emerge as major players in the direction. The nature of their continued support industry. These markets will join Western Europe, to domestic companies, as well as energy and Japan, Korea, and the United States as the centers environmental policies, will do much to mold the of design and manufacturing for original equipment automotive sector over the next ten years. manufacturers (OEMs) and their suppliers. To be sure, there will be no resumption of the status By 2020, as few as ten volume OEMs groups quo. Automakers and their suppliers will need to based in these six major markets will account for reinvent themselves to meet the challenges of a 90 percent of global sales. To remain competitive, dramatically new global automotive landscape. A new era Accelerating toward 2020 — an automotive industry transformed 1
    • The restructuring imperative The current economic crisis has accelerated deep structural change in the automotive industry, setting the stage for sustainable growth. High-cost exporting countries will see domestic capacity closed as vehicle production continues to migrate to the “new Detroits”: Lower-cost centers dotted across India and China and other locations in the regional trade zones of North American Free Trade Agreement (NAFTA) and the European Union. High-volume global platform architectures will become the norm. And, convergence will drive the emergence of new business models characterized by alliances with players from other industries to support new technologies. Figure 1: NAFTA light vehicle assembly capacity utilization (Feb 2008 vs. Feb 2009)2 A recalibration of the automotive industry value 100% chain is in motion. The marked decline in sales over the past three years led to excess capacity in 85% 86% 80% plants around the world, including North America 76% 77% 71% and the European Union (see Figures 1 and 2). Some of the numbers are startling: Like most of its 48% 44% 48% competitors, for example, Honda went from full 43% 41% 38% 37% capacity in February 2008 to utilizing less than half capacity (48 percent) a year later.1 Profitability for OEMs has been hurt and margins for suppliers have sunk below the break-even point, triggering reduced capacity, resourcing to stronger suppliers, a rash Feb F b Feb F b Feb F b Feb F b Feb F b Feb F b Feb F b Feb F b Feb F b Feb F b Feb F b Feb F b Feb F b Feb F b ’08 ‘09 ’08 ‘09 ’08 ‘09 ’08 ‘09 ’08 ‘09 ’08 ‘09 ’08 ‘09 of bankruptcies, and in some cases, the need for Chrysler Ford GM Honda Nissan Toyota Other government bailouts. Source: Ward’s Auto, Data Reference Center Of course, the crisis will not last forever and short- term sales projections foresee over 70 million units Figure 2: European Union light vehicle assembly capacity utilization (2007 vs. 2009)3 sold worldwide by 2015 (see Figure 3). While 92% 90% 89% 89% opinions differ about the timing of the turnaround, 83% 79% 80% there is no doubt that the structure of the 72% 69% 70% 65% automotive industry will be deeply transformed. 64% 57% 53% The decline of Detroit Once the core of the global automotive industry, Detroit’s influence has declined steadily over the past few decades. Sales of signature models have been slowed by the waning popularity of large cars and Detroit’s struggle to compete in the small car 2007 2009 2007 2009 2007 2009 2007 2009 2007 2009 2007 2009 2007 2009 segment. What’s more, Detroit has already lost its leadership in engineering. Most cars manufactured Germany France Spain UK Italy Czech EU27 in 2007, for example, had their primary development Source: Ward’s Auto, Data Reference Center in Asia and Europe and this trend is expected to continue into 2015 (see Figure 4). 2
    • The rise of manufacturing in lower cost Figure 3: Light vehicle production forecast (millions of units)6 regions 80 The move to lower cost regions will be driven by 70 two forces: Cost and demand. The cost of labor South America S th A i 60 in emerging markets continues to be a fraction of Number of vehicles North America that in the developed world (see Figure 5). To take millions) 50 Japan/ Korea advantage of the expanding population in emerging produced (m 40 South Asia markets, OEMs will continue to shift more of their Greater China 30 production to be closer to their biggest source of Middle East/ Africa new customers. For example, Greater China and 20 Europe South America will represent more than 50 percent 10 of growth in global light vehicle production from 0 2008 to 20154. 2008 2009 2010 2011 2012 2013 2014 2015 Source: CSM Worldwide “As the volume of cars sold in these emerging Figure 4: Falling primary development in North America7 markets rises, it will be increasingly necessary for 50 OEMs to move closer to the demand centers,” says 43 RC Bhargava, Chairman, Maruti Suzuki India. “This 40 will be for competitive reasons, which are stronger elopment 33 33 millions) than the lower cost reasons. Engineering for the 30 26 by region (m local customer is also critical, making it another Primary deve major driver.”5 20 10 9 The expected growth of trading blocks (e.g., NAFTA, 4 European Union, ASEAN, and Mercosur) will drive 1 1 0 continued development of regional production Asia Europe Norh America Others systems, with a migration to lower-cost locations 2007 2015 within each region. High exchange rate volatility Source: CSM Worldwide and Automotive News and rising transportation costs have led OEMs and Figure 5: Labor cost comparisons ($/Hour)8 suppliers to focus more on low-cost sourcing within Today’s high cost of production a region. OEMs will increasingly look to balance 12.0 $40.0 production and sales footprints to reduce exposure 10.0 $35.0 Cost of labor ($/Hr) ) Numb of vehicles uced (millions) to adverse exchange rate shifts. The overall effect $30.0 8.0 of this shift is that by 2020, there will be fewer cars $25.0 sold as imports from outside a trade zone (e.g., 6.0 $20.0 ber o produ Korea to the United States or Japan to the European 4.0 $15.0 Union). Even those cars with foreign labels will be $10.0 2.0 produced regionally. For that reason, OEMs welcome $5.0 the emergence of broader trade agreements that 0.0 $0.0 US / Mexico Western Eastern Japan South India China Brazil support greater flexibility. Canada Europe Europe Korea High cost Low cost The new pockets of low cost areas within the region developed markets Production (2008) emerging markets Cost of Labor will become hubs for OEMs at the expense of higher Source: Cost of Labor – Economic Intelligence Unit, Data Dictionary, Total Production 2008 – Ward’s cost exporters such as Spain and Germany (in the Automotive Data Reference Center A new era Accelerating toward 2020 — an automotive industry transformed 3
    • Figure 6: Share of production among top global OEMs producing 50,000 units European Union) and the U.S. and Canada (within in 200714 NAFTA). This strategy is already unfolding. Suzuki, 35.0 16 for example, established plants in Hungary to supply 30.0 the European Union, while Volkswagen and Nissan Cumulative global market share 12 manufacture in Mexico to supply the members of 25.0 NAFTA.9 Renault is building a full-scale assembly plant Number of OEMs 20.0 in Morocco that will produce Logan-based cars for 8 global export, mainly to Europe, starting in 2010.10 15.0 10.0 4 China on the move 5.0 Before a Chinese company establishes itself as a leading global producer, the industry will undergo 0.0 0 Japan Western US China South a period of deep consolidation. This will reverse Europe Korea the relatively weak global market share position Market share Number of players of Chinese OEMs today (see Figure 6). In the near Source: Automotive News, Data Center term, the Chinese government plans to consolidate the top 14 local automotive players into 10 with Figure 7: Joint venture sales represent nearly half of all Chinese automotive sales15 a domestic market share in excess of 90 percent. Dongfeng Nissan, Within the top 10, the government directive is for Cherry Auto, 6.8% two or three to attain annual output of two million 5.5% units and four or five to produce one million units FAW-VW, 9.7% annually.11 In most segments, the supply base is expected to consolidate 30 to 50 percent.12 Guangzhou Honda, The government mandate also encourages 5.3% automakers to develop their own brands, with a Others, 40.2% target of boosting the share of Chinese domestic brands to at least 40 percent of the national market. Shanghai GM, 9.1% Meanwhile, domestic Chinese manufacturers have been charged with exporting up to 10 percent of their product.13 Shanghai VW, 9.4% Chinese OEMs will find themselves in a fierce battle for Geely, 4.6% Toyota JV, 9.3% Joint venture sales supremacy in their own market. Management is highly Chinese company sales motivated to stake their position and prove to Beijing that they deserve to be among the chosen few to lead Source: Ward’s Automotive Data Reference Center, China Sales by Company China’s foray into the global automotive market. Currently, the Chinese industry is also characterized by a high number of joint ventures with established players. The arrangement has provided Chinese companies with auto-making expertise, while also providing the only way into the Chinese market for their partners (see Figure 7). However, most of the 4
    • intellectual property remains in the hands of the Figure 8: 77 percent of global production is concentrated among 10 companies16 foreign joint venture partners. Global Cum. 2008 global Rank OEM group HQ location market market Important questions remain about the future of joint production share share ventures in China. All eyes are on Beijing as they decide whether to allow greater foreign ownership 1 Toyota Japan 9,237,780 13.3% 13.3% or tighten restrictions to protect the fledgling domestic producers. 2 GM United States 8,282,803 11.9% 25.2% 3 Volkswagen European Union 6,437,414 9.3% 34.4% Consolidation and a new global balance Consolidation is well underway and today 10 4 Nissan-Renault Japan/ European Union 5,812,416 8.4% 42.8% global OEMs account for over 77 percent of 5 Ford United States 5,407,000 7.8% 50.6% global production (see Figure 8). Fiat has taken over Chrysler and Volkswagen has swallowed 6 Fiat-Chrysler European Union 4,417,393 6.4% 56.9% Porsche. Deals like these increase scale, streamline distribution, boost asset efficiency, and provide 7 Hyundai-Kia Korea 4,126,411 5.9% 62.9% access to previously limited markets. 8 Honda Japan 3,912,700 5.6% 68.5% In some cases, companies will make targeted 9 PSA European Union 3,325,407 4.8% 73.3% acquisitions to gain access to new markets, channels, or technologies. In others, companies 10 Suzuki Japan 2,623,567 3.8% 77.0% may adopt ‘roll up’ strategies and make multiple Source: International Organization of Motor Vehicle Manufacturers acquisitions to rationalize capacity in a market niche and develop a dominant position. Figure 9: The dominant groups (>1 million units) will be headquartered in six major markets17 A new breed of players will emerge, as well as HQ location OEM and current HQ Potential 2020 HQ a new global balance — with more competitors headquartered in emerging manufacturing hubs, VW, Renault-Nissan (0.5), European Union 5.5 3.5–4 particularly in India and China (see Figure 9). When Fiat-Chrysler, PSA, Daimler, BMW the dealing is done, the landscape will be dominated United States GM, Ford 2 1.5–2 by global OEMs and suppliers based in six major markets: Western Europe, Japan, the United States, Toyota, Nissan-Renault (0.5), Japan 5.5 2.5–3 Korea, China, and India. The Renault-Nissan alliance Honda, Suzuki, Mazda, Mitsubishi is likely to be a model for others seeking platform China 0 1.5–2 and procurement scale but unwilling to risk the challenges of full integration. India 0 0.5–1 Korea Hyundai-Kia 1 0.5–1 Source: Deloitte Touche Tohmatsu analysis. August 2009 A new era Accelerating toward 2020 — an automotive industry transformed 5
    • Dr. Jerome Guillen, Director, Business Innovation, and Dr. Frank Spennemann, Senior Manager, “China is closer to having product for Business Innovation at Daimler AG suggest that, mature markets than most think.” “the emergence of new major global suppliers in traditional commodities is doubtful due to the — Matt O’Leary strong technological foundations of existing players, Director, Corporate Strategy, Ford Motor Company as well as the degree of investment required to become established in developed markets – at the same time, there will certainly also be chances for Supplier networks in low-cost centers smaller, highly innovative pioneers who are able As OEMs and suppliers move to regional models to respond rapidly to emerging demands in new for both low-cost production and design, they will technologies.”19 Ford’s Matt O’Leary, Director, need to examine production quality and maturity Corporate Strategy, also says that “technology will in the low cost regions and then choose from the come from non-traditional places. Alliances will be following supplier strategies: broader than what the auto industry has had in the 1. Move existing suppliers, along with the OEM, to past.”20 OEMs will need to adopt a mix of supplier set up regional low-cost facilities. strategies to ensure the availability of the necessary 2. Identify companies in the local marketplace to components, quality, and technologies as they replace existing suppliers (but only when local expand their operations in emerging markets. markets display sufficient maturity). 3. Encourage established suppliers to partner with Higher volume global architecture will local companies (through joint ventures or other become the norm mechanisms) to combine technology know-how A common challenge for automakers is the with local, low-cost manufacturing. inefficiently low volume of units produced per platform. To remain cost competitive, OEMs have Developing these supplier networks will be one of started to reduce the number of platforms they the greatest challenges OEMs will face over the next produce and are achieving much greater diversity of ten years. Existing suppliers are strained and often models produced from each platform (see Figure 10). lack the financial muscle to add new manufacturing Honda, with its flexible common platform, developed capacity in new markets. Suppliers are also sensitive three dimensionally-distinct versions of the Accord, to technology transfer to local third parties, rightly allowing for market-unique designs where 60 percent fearing the creation of new, lower-cost competitors. of the components are common. And Ford CFO Lewis Booth reports that the company aims to build Because of this, and the need to move quickly to 680,000 vehicles per core global platform within five capture growing markets, Ravi Sud, CFO of Hero years, up from current levels of 345,000 units.21 Group, believes that increased collaboration among suppliers is inevitable. “Manufacturers need to be To remain competitive and maintain centralized able to cater to ever-changing customer demands in quality controls in rapidly-growing emerging markets, the shortest possible time. They need to gain access regional design centers will have to be globally to technology faster and ensure the technology is networked. Examples of this emerging trend include launched faster.”18 Renault, which established a design studio in Mumbai to create vehicles for India; PSA Peugeot Citroen which maintains a technical and styling center in Shanghai; and Daimler with one center in Pune, India and plans for a Benz design center in Beijing.22 6
    • Figure 10: The importance of global platform architectures has increased significantly23 2003 Top five global platform volumes 2007 Top five global platform volumes (Million units produced) (Million units produced) GM T800 (Silverado, Tahoe, Escalade, etc.) 1.67 VW A5 (Golf, Passat, A3, TT, etc.) 2.58 VW PQ35 (Golf, Bora, Beetle, A3, etc.) 1.42 Toyota MC (Camry, Avalon, ES) 1.87 Toyota NCV (Corolla) 1.31 Renault/Nissan X85/B (Clio, Micra, Logan) 1.86 Honda CYR (Accord,Odyssey) 1.18 Ford C1/P1 (Focus, 3 & 5, S40, V50, C70) 1.66 Toyota TMP (Camry) 1.08 Toyota NBC (Vitz/Yaris, Ayao, etc.) 1.53 Total 2003 top five 6.66 Total 2007 top five 9.50 Source: Automotive news, Data center Figure 11 – Increase in global platform volumes24 500 195 450 190 400 Average volume/platform (<50,000 units per year) 185 <50,000 units per year) 350 atforms 300 180 p Number of pla s 250 175 200 150 170 N (< A ( 100 165 50 0 160 1997 2003 2009 2015E Average volume/platform Number of platforms Source: CSM Worldwide A new era Accelerating toward 2020 — an automotive industry transformed 7
    • Changing customers, changing demands Over the next ten years, the automotive industry will likely see the most dramatic changes in customer buying preferences in its 100-year history. Profound in their nature and implications, these changes will play out differently according to the dichotomy between mature and emerging markets. Customers will fragment into distinctly different segments by 2020. Attitudes altered by the recession will continue to evolve in mature markets, while a shift from economy cars to luxury segments will occur in emerging markets. Advancements in alternative technologies will also transform consumer mobility. OEMs will struggle to make required investments and develop the capabilities to deal with these trends. The winners will be the ones that profitably and flexibly meet regional customer requirements. Figure 12: Projected customer segment shifts by 202025 Developed/mature markets Emerging markets Small portion Relative size of customer segment Significant Small portion Relative size of customer segment Significant of market portion of market of market portion of market Current OEM Current OEM p y Capability p y Capability Conscious Consumption Conscious Consumption Custom Segment Custom Segment Safer, Smarter Safer, Smarter Shades of Green Shades of Green mer mer Moving up Moving up Caught in a Web Caught in a Web Older, Wiser Older, Wiser and Cooped-up and Cooped-up Net-worked 2009 2020 Net-worked 2009 2020 Source: 2009 Deloitte Internal Automotive Survey (United States, European Union, Japan, China, Russia, Brazil, Mexico, and India). Deloitte Consulting LLP The customer dichotomy consumers will demand that their vehicles are Segmentation of customers is nothing new to connected to their computers, mobile phones, work marketers in the automotive space. However, by and homes. 2020, the fragmentation of customer needs across the world means that automakers will have to pay These customer trends create tremendous economic more attention to regional demand. challenges for OEMs. In 2009, customers show little willingness to pay extra for entertainment Global OEMs must grapple with the reality that features and green technologies. Meanwhile, the customer demand in both mature and emerging cost to develop and manufacture these technologies economies is changing, albeit vastly different ways remains stubbornly high. The winning OEMs will (see Figure 12). By 2020, consumers in emerging be able to leverage their brands and marketing to markets will move beyond basic vehicles to embrace stimulate consumer demand for these features while luxury vehicles and green technologies. While in achieving manufacturing efficiencies that result in mature markets, as the global recession fades, sustainable profits. 8
    • Seven major global customer trends to watch That said, as in the developed world, cost will not In both developed and emerging markets, OEMs and be the only consideration. The expectations of first- suppliers should be conscious of the following trends time buyers in developing markets will likely increase in order to take advantage of the most important rapidly. Value-oriented models will need to offer opportunities emerging towards 2020: safety and technology features commonly associated with today’s premium brands. 1. Conscious consumption – a growing emphasis on value A variation of this value-perception phenomenon “Economic crises imbed themselves in the memories is being seen in China, says Ford’s Matt O’Leary. of those who live through them”, says Matt “In the interior of the country, there has been O’Leary of Ford. “The global recession will have a movement from motorcycles to small cars but price lasting impression on consumer behavior.”26 Even remains the most important factor. But individuals as prosperity returns, the value of money takes on in coastal areas are willing to spend money on the new meaning. As such, the current economic crisis latest and greatest and on a global product. They will leave more value-oriented car customers in its see themselves as part of the global market.”30 wake. In fact, a recent Deloitte Consulting LLP survey indicated there will be a significant shift of purchase 2. Moving up — the emergence of new wealth priorities.27 Value and safety will become the most in emerging markets important features. As a result, smaller car models The growth of the middle class (and subsequent with enhanced safety features will enjoy stronger jump in the number of high-net-worth individuals) sales leading up to 2020. Short-term trends support in the developing world has been staggering and this thesis: most participants in the United States’ creates new opportunities for luxury brands whose ‘cash for clunkers’ program have exchanged SUVs demand in the developed world is in decline. A and small trucks for smaller cars.28 recent Deloitte Consulting LLP survey indicated the upper end of the customer base, those individuals In emerging markets, car ownership is becoming with high levels of disposable income, will seek luxury more widespread, and yet the gap between car brands with performance features as well as luxury ownership in major markets such as Brazil, Russia, add-ons, such as leather seats, sunroofs, and heated China, India, and the developed world remains seats.31 significant. In the United Kingdom, for example, there are 511 cars on the road for every 1,000 citizens. But in high-growth China there are only 22 per 1,000, while in equally booming India, there are Figure 13: Number of cars per 1,000 people – 200832 600 only 11 per 1,000 (see Figure 13). 511 Numbe of cars per 1000 people 490 499 500 Car ownership in the developing world is set to 458 rise. The largest purchasing segment by 2020 will 400 be those customers buying a car for the first time.29 1 They, too, are expected to be value conscious. 300 212 India provides a telling example. “India will have 200 er a growing set of young people who will need 102 100 transportation solutions,” says RC Barghava, 11 22 Chairman of Maruki Suzuki India. “The needs of 0 these young people are the most critical and OEMs US UK Japan Germany Brazil Russia India China will have to fine-tune their portfolio accordingly”. Source: “Automotive Industry Briefing”. Economist Intelligence Unit A new era Accelerating toward 2020 — an automotive industry transformed 9
    • 3. Shades of green — cost vs. consciousness Higher fuel prices and concerns over global warming “In India the majority of people want have focused attention on cars that either rely less vehicles to commute. They are customers on traditional fossil fuels or use renewable sources of less expensive energy. But there is a notable who look for utility.” discrepancy in the perception of the value of these cars.33 While a majority of U.S. drivers (52 percent) — Ravi Sud, CFO, Hero Group claim a preference for alternative fuel vehicles, only 28 percent would be willing to pay a premium. In India, even fewer respondents (20 percent) were The market for luxury cars in the developing world interested in paying an upfront premium for cheaper might best be compared with the explosion in long-term fuel costs (see Figure 14).34 demand for high-end brands in the late 1990s and early 2000s in North America and Europe. OEMs with Most customers, it seems, do not feel that the strong luxury car portfolios can take advantage of this savings at the pump are sufficient to offset the growing segment by establishing a significant global higher price of today’s alternatively fueled car. This brand presence and catering to regional needs. will prove especially true among first-time car buyers But there is a challenge. The current practice of in emerging markets who will always be sensitive to developing specific luxury models for specific purchase price and lifetime costs. markets may no longer be economically feasible and, as discussed above, the development and The challenge for OEMs is to achieve manufacturing marketing of luxury models will need to use global efficiencies with alternative powertrain by bringing platforms to reduce overall expenses and maximize down the cost of batteries. With considerable platform volume. This may undermine the exclusivity government support, many companies are pouring of certain brands and diminish their perceived value. resources into researching this issue. The OEM that develops a battery that is either cheaper or powerful enough to get the customer to pay a premium will find itself with a technology that may become the standard and that OEM will enjoy all the corresponding advantages of being the first mover. Figure 14: Alternate fuel – preferences vs. willingness to pay36 60 In emerging, high-growth markets, consumer 52.1% 50 preference for green vehicles is shaped by local 46.9% 46 9% environmental issues and government policy, as well 41% 40 as relative costs of different fuel options. For example, Brazil’s enthusiastic adoption of flex fuel is a direct 30 28% 24.8% result of a government initiative to relieve the country 20% of its reliance on petroleum imports. A BMW China 20 11.6% 11 6% senior executive points to an acquisition tax cut on 11% 10 vehicles with engines smaller than 1.6 liters that spurred growth in sales of small-engine cars.35 0 US Japan India China Percent of respondents prefer Percent of respondents willing to pay Source: 2009 Deloitte Automotive Survey. Deloitte Consulting LLP 10
    • 4. Safety first – consumers to be attentive Consumers also professed interest in features that: to innovations • Reduce distractions (via hands-free calling and As technologies evolve, safety remains a primary access to managed content41) customer need across all markets. Indeed, a 2008 • Improve navigation (through GPS and traffic Consumer Reports survey on car brand perception updates) found that U.S. car buyers view safety and quality • Enhance entertainment (with satellite radio, MP3 as the most important considerations to their connections, and access to digital music) final purchase decision.37 In India, while price and fuel economy are most important, safety falls Because of these tendencies, as the economy right behind.38 It comes as no surprise, then, that improves over the next two to three years, an consumers surveyed in both the U.S. and India increase in demand for safety-related connectivity indicated a willingness to pay a premium for features will likely be seen across all global markets. and options such as skid control, telematics, safety OEMs must realize that vehicles exist within an devices, and blind spot mirrors. By comparison, evolving technology ecosystem, one that extends the least-valued features are conveniences not beyond the traditional car. In a decade’s time, for associated with safety, such as power lift gates, soft example, the cell phone may contain many of the close, or cap-less fuel door systems (see Figure 15). same navigation, communication, and tracking features currently being developed for automobile Consumer interest in safety has prompted use. iPod and MP3 player connectivity are already government involvement. In the U.S., for example, common features. The car will have to interface with the National Highway Traffic Safety Administration other tools to keep pace with (and leverage) the fast has introduced a proposal to mandate Electronic moving consumer electronics industry.42 Stability Control on all passenger vehicles by the 2012 model year.39 The number of potential options is dizzying and To meet increasing consumer demand for safety, OEMs will find themselves in the difficult position OEMs will need to focus on developing and of having to bet on some at the expense of others. providing safety-related features. This will present Unfortunately, their ability to bet right will be several challenges to engineers as they try to compromised by the fact that these components improve crash safety standards while meeting the increasingly belong to the high-tech industry and need for cheaper, more efficient cars (e.g., smaller and lighter) among value-conscious drivers. These consumers will reward car makers who make best Figure 15: Customer willingness to pay for technology43 400 use of advanced materials and innovative design. 362 350 5. Staying connected — the need to Avg. willingnes to Pay ($) 300 be networked 250 250 Safety is also an important consideration when it ss 200 180 comes to choosing electronic options that enable the driver to keep in touch. Features like automatic 150 crash notification, emergency assistance, and remote 100 81 A 52 vehicle diagnostics spurred strong interest among 50 25 customers surveyed.40 Of course, being connected 0 offers several other benefits in addition to safety. Vehicle skid Telematics Blind spot Power lift gate Soft close Cap-less fuel control safety services mirror door system Source: 2009 Deloitte Automotive Survey. Deloitte Consulting LLP A new era Accelerating toward 2020 — an automotive industry transformed 11
    • While the need to test drive is the major barrier to growing online sales, customers are also hampered by: “To be successful, car marketers must use • An inability to access accurate and complete the internet to develop virtual showrooms product and pricing information online • Unsuitable interface to negotiate on pricing that can be easily navigated by customers.” with dealers • Concerns about delivery — RC Bhargava, • Lack of integration with related services, such as Chairman, Maruti Suzuki India financing and insurance • Low connectivity rates and internet access in not among the core competencies of automakers. emerging markets To lessen the chance of getting it wrong, it will be Additionally, in many markets dealers wield essential for OEMs to work with players in high tech considerable economic and political clout. In the to combine their expertise and develop the features United States, for example, state franchise laws customers are willing to pay for. restrict direct OEM sales. 6. The web – mixed reviews for internet as a sales channel These factors will hamper OEM efforts to increase More and more customers are turning to the internet online sales, and as a result, large-scale adoption to purchase cars. The past five years have seen a of the internet as a sales channel is unlikely, and steady increase in sales volume, with a compound companies will continue to rely on dealerships as annual growth rate of 14.6 percent in the United their primary sales channels. States and 20.1 percent in Western Europe.44 As a But OEMs are clearly still attracted to growing the percentage of total sales, however, more individuals internet sales channel. General Motors and eBay still prefer to see, touch, and test drive their car before recently launched a test program in California that buying. Only 4 percent of total car sales in the United will allow consumers to negotiate with dealers to States take place online (see Figure 16).45 buy vehicles online.46 Figure 16: Online buying as a percent of total sales in the United States48 Another source of hope for online sales resides in $35 60% emerging markets such as India and Brazil, where 4% 53% $30 the commoditization of vehicles at the entry-level will 50% reduce the need to compare and contrast or negotiate commerce sale ($ Billion) $25 24% with a dealer over options and price. But companies 40% Percent of total category sales $20 should not neglect the web as a sales tool. “Parts and es y 30% after sale service purchases are already strong online $15 18% and will continue to grow,” says Daimler’s Jerome $10 20% Guillen, Director, Business Innovation.47 Ec $5 10% 7. Changing preferences — older, more urban consumers $0 0% Autos and auto Computer Computer Consumer As the median age of the populations of Japan, parts hardware and peripherals electronics software Western Europe, the United States, and Russia 2011 E Online percent of total category sales in 2011 creeps upward, car makers will need to address Source: Forrester, Forecast: U.S. and U.K. online retail sales by category, 2006 to 2011 the changing priorities of older drivers in order to 12
    • gain and retain their business. A recent Deloitte poor enough that people who currently own cars are Consulting LLP survey showed that the mature unlikely to abandon them. In these markets, 70 to 80 demographic segment in the United States value percent of vehicles on the road are small and this is quality, price, and safety above fuel economy, not expected to change over the next decade.52 styling, brand, and even the warranty (see Figure OEMs will need to evaluate alternate models of 17).49 In Japan and Russia, ergonomic features have mobility and rethink typical vehicle packaging, been cited as a selling point for the same segment.50 proportions, and use options for their urban To reach the mature driver, OEMs will need to customers. Different markets will need alternatives to focus on the development of user-friendly, intuitive, the traditional single-owner model. Smart, flexible, low-cost vehicles. Vehicles targeted for the older user-friendly rental options, such as Daimler’s Car2Go driver will need to be designed with human factors in Germany (launched in 2008)53 and Zipcar in North in mind: Easier vehicle entrance and exit, larger America,54 will have to be considered. displays, improved lighting, and augmented night driving. With features designed to augment safety and reliability, these cars will improve the ownership experience compared with current low-cost options. “Parts and after sale service purchases are The other important demographic trend is urbanization. Around the world, cities are already strong online and will continue to experiencing strong population growth. In developed countries, the proportion of the grow.” population living in urban centers is currently 75 — Dr. Jerome Guillen, Director, percent, while in the developing world urban Business Innovation, Daimler dwellers represent 45 percent of the population. However, by 2020, those numbers are expected to rise to 78 percent and 55 percent, respectively. By that same year, there will be 24 megacities with Figure 17: Attribute preference for the “mature” customer55 populations of at least 10 million.51 18% Customer segment average age: 53 yrs. Since improvements in infrastructure usually lag population growth, increasing urbanization will 16% mportance make city streets more congested, noisy, and 19% polluted. Commute times will lengthen. Those who Percent Im continue to drive in cities will look for smaller, more 15% fuel-efficient vehicles. But as congestion increases, 10% many customers will abandon car ownership (or leasing) in favor of public transit. Even in these cities, 15% however, consumers will need periodic access to vehicles for trips to outlying areas and other special 7% occasions. Quality Price Safety Fuel Economy Styling Warranty Brand Attribute Importance 19% 19% 19% 15% 11% 9% 8% Where public transit is inadequate, a car will still Survey-Avg. be the preferred day-to-day option. In many Latin Source: 2009 Deloitte Automotive Survey. Deloitte Consulting LLP American cities, for example, public transportation is A new era Accelerating toward 2020 — an automotive industry transformed 13
    • 14
    • Technology to reflect new sets of demands Consumer demands and new regulations will heavily influence the development and marketability of innovations in the auto industry. First among these demands is fuel efficiency, which will lead to new (or improved) powertrain technology. But safety and infotainment are also important consumer considerations. The approach to technology will differ between developed and emerging markets. Advanced combustion engines will extend the reign of combustion engines over alternative technologies. The approach to technology content in cars will be 1. Powertrain technology and the move divided on regional lines. Green alternatives, such as to electric electric cars will likely find more consumer interest in Currently, hybrids and electric vehicles (EVs) wealthier countries while flex-fuels, such as ethanol represent a tiny fraction of total cars on the road. In and natural gas will find wider adoption in emerging Germany, of the 49.6 million cars56 in operation, a markets where the local climate or resource base mere 1,500 are electric while 22,300 run on hybrid favors these fuels over petroleum. technology.57 Yet growing environmental concerns among consumers58, environmental regulation, The outcome will be a variety of powertrain volatility of gas prices, and depletion of oil reserves59 technologies in the market by 2020. Government will translate into a moderate increase in demand for policies will heavily dictate the portfolio mix in each EVs by 2020, epecially for use in short commutes. country. These policies will be driven by a number of factors from stricter carbon emission standards to With large-scale production of EVs set to begin in independence from foreign energy. Europe in 201160, the growth potential in Europe should not be ignored. Although the number of EVs Deloitte member firms estimate that by 2020, on the road will remain low at first, surveys suggest electric vehicles and other “green” cars will represent that Europeans are willing to switch to EVs.61 up to a third of total global sales in developed markets and up to 20 percent in urban areas of Barriers to widespread adoption of EVs emerging markets. Between now and 2020, there are several potential barriers to the wider adoption of EVs: Industry players need to be aware of the following trends in order to take advantage of the most • Elevated costs of electrically propelled vehicles important opportunities emerging among car buyers • Limited range of EVs around the world. These trends include: • Lack of infrastructure 1. Powertrain technology and the move to electric • Lack of government incentives or subsidies 2. The shift from mechanics to electronics 3. Low tech mobility A new era Accelerating toward 2020 — an automotive industry transformed 15
    • Currently, electric vehicles are significantly more Government incentives to spur EV adoption are also expensive compared to traditionally propelled lagging. Although governments in the United States vehicles. This is due mainly to the costs of the and Western Europe support the development of lithium-ion battery, which adds €10-€15,000 to the EV technology68, only France, England, and China price of a traditional internal combustion vehicle.62 offer subsidies (up to €5,000 or US$7,100) on Also, specialized microprocessor controls for the EVs.69 In Germany, the government offers a car tax electric motor and the need to adapt systems such exemption70 to EV buyers rather than a cash subsidy, as air conditioning (which usually draw power from although with the yearly tax burden for owning a the combustion engine) increase development cost Volkswagen Golf set at €124, the incentives are of EVs as well as the end customer price.63 Better hardly overwhelming. That said, whether through Place tries to answer this problem with a lease tax measures, subsidies, or regulatory reform, model for an EV’s battery pack: The battery pack will government can still play an enormous role in the remain the property of the company and customers spread of EVs, according to Daimler's Dr. Jerome are charged a monthly fee. However, the future for Guillen, Director, Business Innovation, and this model is highly uncertain.64 Dr. Frank Spennermann, Senior Manager, Business Innovation.71 Another significant barrier to the adoption of EVs lies in the very limited reach of EVs compared with Some municipalities are taking steps to build traditionally propelled vehicles. The electric vehicles infrastructure. In Stockholm and Amsterdam, for of the first generation, which will be launched over example, recharging stations are already in operation. the next two years, come with a range of less than In Germany, larger utilities (RWE and EON) are 200km. That means that consumers would need building infrastructure while in Canada, the City of to alter their usage behavior dramatically. Instead Vancouver recently voted to expand electrical vehicle of refueling their ICE propelled vehicle as needed usability by requiring developers to put electric-car in 5-10 minutes, drivers of EVs would likely plug-in plug-ins in a percentage of new condominiums their vehicle every night to top off the charge.65 and apartments.72 Companies are also preparing. In October 2009, Daimler will loan the City of Berlin a The limited range of lithium batteries creates fleet of 200 EVs for testing purposes.73 the need for thousands of recharging stations placed along highways, throughout cities, and in Finally, the ascent of EVs in developed markets is likely parking garages. Better Place is currently building to be threatened by the emergence of alternative infrastructure,66 but much more needs to be done fuel technologies, as discussed below. If research and before drivers will trust driving their EVs over longer development (R&D) efforts are able to reduce the distances. Moreover, initiatives to standardize “well-to-wheel” efficiency of advanced technology batteries and connector plugs have yet to emerge. and biofuel combustion engines significantly below 120g CO2/km74, mass market adoption of electric Because of this, as well as increased urbanization vehicles may be delayed due to increased customer and higher maintenance costs, a senior executive acceptance of the existing technology. at FAW-Volkswagen in China believes that “small electric vehicles will develop only for short distance driving. These cars will be used in conjunction with city buses and railways.”67 16
    • Internal combustion engines to dominate in world.79 And, similar to those barriers cited for emerging markets the developed world, emerging markets also lack In emerging markets, new car sales will likely be infrastructure and regulatory support for the wide- overwhelmingly dominated by traditional, internal spread adoption of EVs. combustion engines. One reason is the price of fuel. Fuel taxes make for significantly more expensive Developments in the EV space are widely discussed gasoline in Japan and Europe, in some cases more with several new models recently introduced or than double the price of fuel in developing markets.75 planned to be launched in the next few years (see Figure 18). Lower-cost EVs like BYD in China and However, there is considerable interest in reducing E-Nano by Tata in India are capturing attention and pollution in the megacities of China and India and may be encouraged by governments as a means to where price is not the only factor, demand will vary counter congestion in larger cities. based on largely political and geographical factors, says a senior executive at Hyundai China. “Driven by The hybrid stepping stone pressures on energy saving and emission reduction, While consumers await a more EV-friendly world, developed countries will proceed with the adoption hybrid vehicles will serve as transition technology in at a relatively high pace”.76 developed and developing markets, according to a senior executive at BMW China.80 Hybrids feature The impetus to go electric as a means to reduce lower carbon emissions, greater fuel efficiency, and carbon emissions is less acutely felt in China and are less infrastructure intensive than EVs. They also India, where aggregate carbon emissions from aid in the switch from full-combustion engines to automobiles are miniscule when compared with electric motors. emissions from coal-fired power plants.77 But, the Chinese governments’ push to be one of the Sales of hybrid cars bear careful scrutiny as they leading producers of hybrid and all-electric vehicles will reveal customer preferences to carmakers. It is within three years may see them leapfrog current expected that by 2020, hybrids will still outnumber EVs technology and strengthen its competitive position.78 but trends point to a fully electric long-term future. Other cost barriers include the price of a battery, which is prohibitive for many in the developing A new era Accelerating toward 2020 — an automotive industry transformed 17
    • Figure 18: The most talked about electric vehicles81 Electric Launch Automaker Model power cons. Charging time Range Price Comment date (kwh/100km) Think Global AS Think City 13hrs 180km €20-25 k 2007 Tesla Roadster 14 3.5hrs 350km €75 k 2008 Quick-charge: 80 percent in €35 k (will be skimmed Mitsubishi i-Miev 30 minutes; household charger 160km along production volume; 2009 (200V): 100 percent in ca. 7hrs target price: €15k) €24 k (including a Quick-charge: 80 percent in Plug-In subsidy of €10 k by Subaru 15 mins; household charger 80km 2009 Stella Next Generation Vehicle (200V): 5hrs Promotion Center) Second Quick-charge: 50 percent in Pre-sale: 200.000yuan BYD Auto E6 18 > 400km half of 10 minutes (€20.000) 2009 * Battery not Comparable to a included in Nissan Leaf Quick-charge: 30 minutes 160km traditionally propelled 2010 end-customer vehicle* price; must be leased GM Volt 10hrs (120V) 64km €30 k 2010 Range Extender Quick-charge (400V, 64A): 100 Kangoo Be Renault percent in 30 minutes; household 160km €21 k 2011 Bop Z.E. charger: 4-8hrs Ford Focus 2011 All-electric Toyota urban 2012 commuter Tesla Model S Quick-charge: 45 mins 255-480 km €50 - 60 k 2012 Daimler Smart EV 2012 Volkswagen 2013 Megacity BMW 2014 Vehicle 18
    • Alternative fuels remain an important option Figure 19: Natural gas vehicle fleet84 Of course, while companies rush to produce the 2,500,000 3000 most marketable electric vehicles, they will have to keep an eye on developments in the alternative 2,000,000 2500 fuel space. In emerging markets in Asia and Numb of refueling stations 2000 Latin America, the availability and easy access to hicles 1,500,000 natural gas sources is expected to drive adoption g Number of veh 1500 of natural gas-powered vehicles (see Figure 19). 1,000,000 Further government investments in the necessary 1000 ber infrastructure will be required for natural gas to truly N 500,000 500 take hold as an alternative. In addition, if the U.S. moves decisively on energy independence, natural 0 0 gas could become an important part of the domestic Pakistan Argentina Brazil Iran India Italy China fuel portfolio, especially for fleets. Natural gas vehicles Refueling stations Source: International Association for Natural Gas Vehicles. 2009 data Other means to fuel efficiency The convincing shift to flex-fuel in Brazil (used by over Figure 20: Flex-fuel vehicle sales in Brazil85 70 percent of the cars on the road)82 (see Figure 20).[1] has been spurred by a government initiative to reduce 2,500,000 90% the country’s dependency on oil imports. The role of 80% government everywhere is a significant consideration 2,000,000 70% Percent of to passenger car sales in the development of alternative powertrain 60% hicles technologies. While more efficient technologies are 1,500,000 50% Number of veh r one way, another is to make the cars more efficient 40% by using lighter materials. Matt O’Leary of Ford 1,000,000 30% suggests that “we might be on the tipping point to otal N 20% meet fuel economy constraints” and that “cars may 500,000 10% use more aluminum to reduce weight and energy requirements”.83 0 0% 2003 2004 2005 2006 2007 2008 Total FFV sales Percent of total passenger car sales Source: ANFAVEA A new era Accelerating toward 2020 — an automotive industry transformed 19
    • 2. The shift from mechanics to electronics More than ever, technology matters The move to greater electronic content in cars has Increasingly, what a car has to offer comes in the been underway for several years and has been form of superior technology. As the number of responsible for such major innovations as security applications for technology increases, OEMs and systems, anti lock brakes, engine control units, and suppliers will need to be selective. The criteria for infotainment. These features proved so enormously choosing what to include and what to leave out will popular that they are now widely available, depend entirely on what customers are willing to pay demonstrating that consumers are willing to pay for for. This segmentation is nothing new to car makers, technology that enhances their driving experience but as the developing world becomes the source of – and also the potential to dramatically reduce strongest sales growth, the technological features in costs as volume ramps up. As a result, OEMs have each car cannot come at the expense of price. been steadily inserting more electronic components into each vehicle. The German market provides an The role of government in directing the industry illustrative example: In 2007, electronic content in towards the enduring technologies will be key. In passenger cars was estimated at 20 to 30 percent fact, some companies are looking for such direction. of production costs. By 2010, the proportion is “What would help is to have some kind of a expected to rise to 40 percent86 and by 2020, the policy on national energy security that gets people number will likely reach 50 percent.87 energized about moving this mountain,” says Ford’s O’Leary. “Anything done around energy security 3. Low-tech mobility could flow over to the automotive industry and In emerging markets, while personal income levels could spur innovation if done right. It could spur us are rising, discretionary income remains low. Large all to a solution mentality.”88 segments of the population will not be able to afford full size or even standard compact passenger cars currently offered by European and Japanese OEMs. The cars that will sell best to first-time and lower income buyers in these regions are simply those that are priced most attractively. In some cases, this means stripping a car of any superfluous features. The launch of the Tata Nano in India is a leading indicator of the rise of the low-content ultra low cost car: It comes without power steering, a single windshield wiper, and a single side-view mirror. The upshot is that OEMs aiming to harvest the strong economic growth forecasted for emerging markets will need to develop low cost, low content vehicles. 20
    • “In India, GPS is basically calling the person you are visiting for directions.” — RC Bhargava, Chairman, Maruti Suzuki India A new era Accelerating toward 2020 — an automotive industry transformed 21
    • Getting the right skills Key to any lasting transformation in the automotive industry are the primary issues of skills and workforce flexibility. Both OEMs and suppliers will have to plan for a future that requires ever more skilled workers from design to production. In the developed world, an aging population is intensifying the competition for young, talented employees. Successful companies will embrace new and comprehensive approaches to talent management. Workforce flexibility be more limited to regional markets. Sales and after The current major transformations taking place in sales services, meanwhile, will remain completely the automotive industry are occurring on a number focused on the places they operate. of fronts, all of which require a flexible workforce. They include: Who will replace the retirees? • Technology. The growing demand for greener Increasingly, skilled workers will leave the workplace engine technologies, coupled with a shift towards due to retirement. Even in the current downturn, increased integration of mechanical, electrical, and many companies are experiencing shortages in software engineering. certain key areas. For instance, 31 percent of • Production. To reduce risks and costs, OEMs and automotive companies in the United States today suppliers are shifting towards the closest low-cost report moderate-to-severe shortages of skilled production environments within trading zones. production workers, almost all of whom expect • Research and development. To meet the the future shortages to be at least as challenging needs of new customers in emerging markets, or worse. Similarly, 28 percent of automotive companies’ R&D and design efforts are being companies report moderate-to-severe shortages centered in the markets they expect to serve. of scientists and engineers and also expect future shortages to be at least as challenging or worse. Each of these factors will have an impact on talent At the same time, having a high-skilled, flexible management as OEMs struggle to find the right workforce is seen as one of the top three drivers of numbers of employees with the right skills in the future business success.89 right place at the right time. Plant mangers report that while the role for unskilled To build more technologically advanced cars, labor in the developed world is diminishing, workers will need to be suitably trained and rarer skills in project management, computers, cross-trained to handle these new technologies. communications, and team building are increasingly As production is specialized by region, workforce essential to the success of any production facility. capability will have to be developed accordingly. The worker of the future will be expected to handle an enormous array of new vehicle technology and, Global programs, regional focus moreover, keep current with new developments As technologies evolve, OEMs will endeavor to in these technologies. Areas such as the seamless distinguish and develop talent pools with traditional integration of code, engine control units, and the and non-traditional workers by technology and integration of multiple systems are all skill-intensive. region. Workforce requirements for each region will be determined by function and scale. Certain Finding these talented employees in developed functions — such as design, engineering, and parts markets is hampered by a number of factors. production — will be carried out on an increasingly Education is one. Only 16 percent of students diverse geographic basis, working together in a graduating from North American universities earn virtual environment. Others, such as assembly, will science or engineering degrees.90 And despite the 22
    • Figure 21: Change in working population (aged 20–64) over 2005–202597 30 27.8% 25 22.08% 20 15 12.29% 9.5% 10.3% 10 Percentage e 5 3.89% 0 -5 -1.87% 1 87% -5.32% -10 -15 -12.59% -14 2% 14.2% -20 Japan Russia Germany France UK Canada China USA India Brazil Source: Deloitte Research, based on population division of the Department of Economics Social Affairs of the United Nations Secretariat (2006). World population prospects: The 2004 revision, New York: United Nations fact that 82 percent of survey respondents consider tailor curriculum. They have set up alliances to create manufacturing critical to America’s economic key centers for studying new technology in the auto prosperity, a recent survey showed that nearly industries. Importantly, these alliances are worldwide half (49 percent) of all respondents would not in scope.96 recommend a career in the manufacturing sector.91 Chinese universities, meanwhile, are more oriented Globalization presents another set of challenges to these technical subjects, and 42 percent of related to human resources. A global workforce all graduates receive their degrees in science or means different demographic profiles and engineering.92 That said, while the top Indian and different sets of expectations across geographies. Chinese engineering graduates are very strong, the Coordination of business will involve numerous quality of second-tier graduates may be inconsistent. considerations, including location, language, It is no surprise then, to hear Ajay Seth, CFO at technologies, regulations, and cultural differences. Maruti Suzuki say of the situation in India, “A major Each location will have its own skill surpluses and issue we are facing in the area of R&D is the lack shortages, and coordination of these resources will of good engineering and design capabilities. These be a complicated procedure. critical skill sets are scarce in our region.”93 At the same time, increasing cost pressures from consumers are placing demands on companies to A senior executive at Volkswagen Group China innovate, which in turn, places a greater imperative echoes Seth’s comments that the three most critical on finding the right individuals who can contribute. areas with skill shortages are R&D, marketing, and Yet the recent economic downturn, with its management (especially investment management).94 bankruptcies and mass layoffs, has caused many The executive also questions the Chinese education high-talent employees to consider a permanent system’s ability to keep pace. “Industry is developing move out of the industry. rapidly, but the education system is falling behind.”95 A new approach to labor Ford has encountered similar problems finding the The demand for skills does not diminish with a right talent and has partnered with universities to reduction in sales. Markets demand innovation and A new era Accelerating toward 2020 — an automotive industry transformed 23
    • creativity and customers demand faster responses Investing in long-term skill development to their changing needs. Yet because so much of Modern plants need multiple skills to function and the cost of producing a car is fixed, the pressure currently neither job-related education nor the to reduce expenses is frequently focused first on vocational direction of current students are adequate the labor force. The current downturn has forced to meet current or projected needs. In the long companies to look at new ways to contain costs and run, a failure to find adequately-trained resources improve margins. However, many companies have and train the current workforce in emerging reacted too severely, jeopardizing long-term success technologies will significantly hamper manufacturers’ by not aligning their talent strategies to projected competitiveness. needs. Laid off employees may have taken jobs in other industries and may be unavailable by the time Training begins with pre employment skill they are once again needed. development. “The education system will be critical for the development of an employable workforce,” says RC In this buyer-oriented market, OEMs and suppliers Bhargava, Chairman, Maruti Suzuki India. “The current will attempt to institutionalize flexibility in their education system in India, for example, is not geared labor costs by using nontraditional employees and to meet the workforce requirements for an economy innovative compensation and scheduling plans. growing at an annual rate of nine percent.”98 Two different spectrums exist for OEMs and Once employees are in the plant, progressive companies suppliers to introduce this flexibility: will provide training on a proactive and ongoing basis. 1. Core vs. noncore employee mix. This may There are calls for more group-based training as teams include a mix of ad hoc temporary labor to fill the become more responsible for improving products and need for strategic capabilities or even outsourced processes, working business plans, and addressing manufacturing. But reducing the number of performance gaps. In short, the employee of the future traditional employees can put the company will have a broader set of skills, rather than narrow into crisis when the need to ramp up occurs capabilities, that make him inflexible. and there are no workers available. There are cost implications: Severance, replacement, and Training programs will be adjusted based on generation training among them. And finally, the company’s and job type, each of which has different learning reputation may suffer, making it harder to attract styles. For example, Generation Y prefers interactive top talent. learning from trusted sources, using short videos, 2. Innovative compensation. To optimize simulation, and practice to quickly master skills. workforce contributions, companies may consider developing customized rewards Improving the industry’s employment brand and compensation programs, such as flexible Generation Y will form the largest portion of the scheduling, variable compensation, and phased future working population99 and will arrive on the retirement. These solutions can improve cost job with a unique set of needs and expectations. flexibility, enhance employee satisfaction, and This is not great news for the automotive industry. maintain quality and productivity levels without The auto sector is perceived negatively today among interruption. Gen Y in western countries and Japan. Industry jobs are seen as low paying, physically intensive, Currently, most U.S. companies use ad hoc solutions, dirty, and unsafe. Gen Y also lacks confidence in the but future challenges, uncertainty, and volatility future of manufacturing. will encourage organizations to institutionalize a dynamic solution. 24
    • What’s more, growth in other industries where Align, analyze, and differentiate similar skills are needed (e.g., software development, OEMs and suppliers will endeavor to create a more business process outsourcing, and other service explicit connection between business and talent sectors), is raising the competition for young, strategies based on a fact-based understanding of talented people. talent supply and demand, not only in the external market, but also within the company. Armed with OEMs and suppliers will need to work on their brand this knowledge, a mix of talent and work solutions image to break down negative perceptions. They will be crafted to drive competitive advantage. may consider open houses, chamber of commerce meetings, or field trips that invite students and Workforce planning will emphasize workforce parents to tour their plant where they can learn training to enable a flexible, diverse, and global more about the industry and the numerous workforce to ensure that engineers and managers challenging and rewarding career opportunities. are equipped with emerging skills and to transition They may further engage the community by production workers into skilled trades’ positions. speaking with local leaders about the economic value of job creation and the retention of skilled Increasingly, programs will be tailored to offer special workers to the community. attention to critical workforce segments with explicit metrics for design and evaluation. These metrics OEMs will all need to consider the expectations will be reviewed at the board level and the onus of this young new workforce. They want a sense will fall on the human resources function to include of purpose and meaning to their work, a tech- organization, process, technology, and vendors in savvy work environment, work/life flexibility, and their spheres of activity. long-term career development. To strengthen their case, OEMs will need to experiment with recruiting programs, internships, and cooperative employment arrangements. Advertising or public relations campaigns will also be employed to transform the employment image. This is not only the case in North America. At Hyundai China, executives have identified the need to “cultivate a base for competition, innovation, and learning, to press employees towards improving themselves.”100 One of the best sources of feedback on the industry’s employment brand is the customer. Research from customer surveys will be leveraged by progressive companies to help direct programs aimed at enhancing the brand among Gen Y. The same intelligence will be used to launch a wider advertising campaign to emphasize those characteristics this demographic deems important. A new era Accelerating toward 2020 — an automotive industry transformed 25
    • The next chapter in industry history Over the next decade, the automotive industry as a efficiency, and connectivity, will also be important to whole will experience dramatic transformation. The developed world customers. economic crisis has acted as an accelerant, placing pressure on many companies to change. To guide these transformations, automotive companies will struggle to find the right people, Consolidations will leave the industry with fewer with the right mix of skills, at the right time, at global players. Those that remain will look to shift the right cost. Their approach to talent must be substantial engineering and production to lower cost proactive and progressive. A fundamental shift in centers. This move will not only help contain costs people management practices will be undertaken (principally, variable labor costs), but it also means to differentiate the automotive industry, and enable that automakers will be able to access valuable companies to attract, retain, and motivate the talent talent and respond more easily to the demands needed for future business success. of the fastest growing segment of car buyers in emerging markets. Understanding these four elements — structure, customers, technology, and people — and how In emerging markets, an entirely new class of car each will evolve over the next decade is key for both buyers will seek low-cost, low-tech cars, while a OEMs and suppliers. The transformations implied will significant segment of newly wealthy customers touch on every step of the complex process involved will want more luxurious brands. In the developed in taking a car from a designer’s imagination to a world, the priorities of drivers will shift away customer’s driveway. The companies that thrive in from fashionable add-ons to features designed to the new emerging competitive landscape will be enhance the safety and efficiency of their vehicles. those that get each step right. But the most important factor will remain price, and carmakers developing greener engines will need to find ways to make these cars price compatible with more traditional internal combustion engines. Other new technologies, those that enhance safety, 26
    • Automotive industry contacts Acknowledgements Martin Hoelz Deloitte Touche Tohmatsu wishes to acknowledge and Global Automotive Group Leader thank the many partners and professionals from Deloitte Deloitte Germany member firms worldwide who contributed insights and mhoelz@deloitte.de information to develop this report. Sincere thanks to Tel: +49 711 16554 7305 Martin Hoelz (Deloitte Germany), Robert Hill (Deloitte Consulting LLP, United States), Dick Kleinert (Deloitte Michelle Collins Consulting LLP, United States), and Randy Miller (Deloitte Consulting LLP, United States) for leading the development Global Automotive Group Co-Leader of this thought leadership report. In addition, special Deloitte United States (Deloitte LLP) thanks to the senior executives who participated in the micollins@deloitte.com research representing Ford Motor Company, Daimler AG, Tel: +1 313 396 3219 Maruti Suzuki, Hero Group, Hyundai (China), FAW-VW (China), and BMW (China). Hans Roehm Global Managing Partner, Manufacturing Industries Deloitte Touche Tohmatsu Global Deloitte Touche Tohmatsu Manufacturing Industry Group hroehm@deloitte.de The Global Manufacturing Industry Group of the member Tel: +49 711 16554 7130 firms of Deloitte Touche Tohmatsu is comprised of more than 750 partners and 12,000 industry professionals in over 45 countries. The group’s deep industry knowledge, service line expertise and thought leadership allows them to solve complex business issues with member firm clients in every corner of the globe. Deloitte member firms attract, develop, and retain the very best professionals and instill a set of shared values centered on integrity, value to clients, commitment to each other, and strength from diversity. Deloitte member firms provide professional services to more than 88 percent of the manufacturing companies in the Fortune Global 500®. For more information about the Global Manufacturing Industry Group, please visit www.deloitte.com/manufacturing. A new era Accelerating toward 2020 — an automotive industry transformed 27
    • Endnotes 1. NAFTA light vehicle assembly capacity utilization (Feb 2008 vs. based on discussions with 24 people including executives at Feb 2009). Ward’s Auto, Data Reference Center. major OEMs and Deloitte automotive partners from U.S., UK, 2. Ward’s Auto, Data Reference Centre. Brazil, Russia, China, India, Germany, Sweden, France, Italy, 3. ibid. Japan during July 15 to August 10, 2009. 4. “CSM Global Light Vehicle Production Summary”. CSM 28. “U.S. car buyers prefer smaller vehicles”. Financial Times. Worldwide. July 2009. http://automotiveforecasting.com/gpo/ August 3, 2009. global-summary.pdf. ”Structural Challenges for the Future. North 29. “Automotive Industry Briefing”. Economist Intelligence Unit. July American Outlook.” CSM Worldwide. March 26, 2009. 2009. 5. Deloitte interview with RC Bhargava, Chairman, Maruti Suzuki 30. Deloitte interview with Matt O’Leary, Director, Corporate India July 8, 2009. Strategy, Ford Motor Company, August 4, 2009. 6. “CSM Global Light Vehicle Production Summary”. CSM 31. 2009 Deloitte Internal Automotive Survey (U.S. and India) Worldwide. July 2009. conducted by Deloitte Consulting LLP. Survey of 991 U.S.-based 7. “Structural Challenges for the Future” presentation by Michael Deloitte U.S. employees and 2,174 India-based Deloitte U.S. Robinet, Vice President, Global Vehicle Forecasts. CSM employees. March 2009. Worldwide. March 26, 2009. “Auto brain drain”. Crain's Detroit 32. “Automotive Industry Briefing”. Economist Intelligence Unit. July Business, May 7, 2007. Primary vehicle development includes 2009. vehicle structure, chassis, engine box, build process, powertrain 33. Even among ‘green’ buyers. Toyota’s hybrid Prius, priced at a / steering production, safety, seating structure and electronics. premium to ICE cars in its class sold well. Its unique look also 8. Cost of Labor – Economist Intelligence Unit, Data Dictionary, set it apart from other cars on the road. However, customers Total Production 2008 – Ward’s Automotive Data Reference showed less willingness to pay for other Toyota models with Centre. hybrid engines, indicating that it is not only necessary to be 9. ”GM, Suzuki to build cars in Hungary”. Chicago-Sun Times. green, but to be seen as being green. January 14, 1990. “Volkswagen to produce new compact sedan 34. 2009 Deloitte Internal Automotive Survey (U.S. and India). in Mexico”. Reuters. July 20, 2009. “Nissan Will Shift Production Survey of 991 U.S.-based Deloitte U.S. employees and 2,174 to Mexico to Counter Yen”. Bloomberg. February 20, 2009. India-based Deloitte U.S. employees. March 2009. 10. Renault in Morocco. Renault web site: www.renault.com. 35. Deloitte interview with a senior executive at BMW China. 11. Chinese Automotive Policy Guidelines, March 2009. August 2009. 12. Ibid. 36. 2009 Deloitte Internal Automotive Survey (U.S. and India) 13. Ibid. conducted by Deloitte Consulting LLP. Survey of 991 U.S.-based 14. Automotive News, Data Center. Deloitte U.S. employees and 2,174 India-based Deloitte U.S. 15. Ward’s Automotive Data Reference Center, China Sales by employees. March 2009. Company. 37. ”Top five in brand perception by category”. 2008 Car Brand 16. “2008 World motor vehicle production by manufacturer”. Perceptions Survey. Consumer Reports. January 2008. International Organization of Motor Vehicle Manufacturers. 38. 2009 Deloitte Internal Automotive Survey (India) Survey of http://oica.net/wp-content/uploads/world-ranking-2008.pdf. 2,174 U.S.-based Deloitte India employees during March 2009. Total volumes include cars, light commercial vehicles, heavy Respondents ranged in age from under 25 to over 64 years old, commercial vehicles and buses. with the majority (87 percent) falling between 25 and 44 years 17. Deloitte Touche Tohmatsu analysis. August 2009. old. Males represented 77% respondents and females 23%. 18. Deloitte interview with Ravi Sud, CFO, Hero Group, July 7, 2009. March 2009. 19. Deloitte interview with Dr. Jerome Guillen, Director, Business 39. “Electronic stability control to be standard by 2012. Government Innovation, Daimler AG and Dr. Frank Spennemann, Senior would have safety feature on all light-passenger vehicles”. Manager, Business Innovation, Daimler AG. July 24, 2009. Consumer Reports. August 2009. 20. Deloitte interview with Matt O’Leary, Director, Corporate 40. Deloitte customer survey carried out as part of a client project Strategy, Ford Motor Company, August 4, 2009. for a leading Asian automotive OEM in the U.S. during 2009. 21. “Ford Speeds Up New Product Rollout”, AutoBeat Daily, Deloitte Consulting LLP. August 7, 2009. 41. Managed content includes intelligent vehicle displays that filter 22. ”Renault to tie up with design schools in India”. The Times vehicle status to focus on key items and exceptions. of India. February 6, 2008. “PSA opens Shanghai design 42. Deloitte interview with Dr. Jerome Guillen, Director, Business studio”. Automotive News Europe. February 2, 2009. “Daimler Innovation, Daimler AG and Dr. Frank Spennermann, Senior India Unit: Mercedes-Benz 2008 Car Sales Up 46% On Yr”. Manager, Business Innovation, Daimler AG. July 24, 2009. Dow Jones. January 9, 2009. “China: Daimler considering an 43. 2009 Deloitte Internal Automotive Survey (U.S. and India) Advanced Design Center in Beijing”. Automotive World.com. conducted by Deloitte Consulting LLP. Survey of 991 U.S.-based April 6, 2009. Deloitte U.S. employees and 2,174 India-based Deloitte U.S. 23. Automotive News, Data Center. employees. March 2009. 24. “Structural Challenges for the Future”, CSM Worldwide, March 44. Forrester: Forecast: U.S. and UK online retail sales by category, 2009. 2006 to 2011. 25. Customer preferences based on 2009 Deloitte Internal 45. Ibid. Automotive Survey (U.S. and India) conducted by Deloitte 46. “General Motors, eBay test selling cars online”. Automotive Consulting LLP. Survey of 991 U.S.-based Deloitte U.S. News. August 10, 2009. employees and 2,174 India-based Deloitte U.S. employees. 47. Deloitte interview with Dr. Jerome Guillen, Director, Business March 2009. Innovation, Daimler AG and Dr. Frank Spennermann, Senior 26. Deloitte interview with Matt O’Leary, Director, Corporate Manager, Business Innovation, Daimler AG. July 24, 2009. Strategy, Ford Motor Company. August 4, 2009. 48. Forrester: Forecast: U.S. and UK online retail sales by category, 27. Customer preferences based on 2009 Deloitte Internal 2006 to 2011. Automotive Survey (U.S. and India) conducted by Deloitte 49. 2009 Deloitte Internal Automotive Survey (U.S. and India) Consulting LLP. Survey of 991 U.S.-based Deloitte U.S. conducted by Deloitte Consulting LLP. Survey of 991 U.S.-based employees and 2,174 India-based Deloitte U.S. employees. Deloitte U.S. employees and 2,174 India-based Deloitte U.S. March 2009. OEM capabilities to meet the 7 customer trends employees. March 2009. 28
    • 50. Interviews with Deloitte automotive partners in Japan and "Die Spielregeln ändern sich,” Mitsubishi; Handelsblatt, Russia. July 2009. August 2, 2009. “GM shows Chevy plug-in concept”. CNN 51. United Nations, World Population Prospects: The 2008 Revision. Money. January 8, 2007. “Wenn 10.000 Ingenieure an einem 52. Interview with Deloitte automotive partners in Latin America. Elektroauto basten”. Manager Magazin, July 10, 2009. “Die July 2009. lange Leitung von BMW”. Handelsblatt, August 4, 2009. “FHI 53. www.car2go.com to Launch “Subaru Plug-in STELLA” EV in Japan”. Fuji Heavy 54. www.zipcar.com Industries Ltd, press release. June 4, 2009. http://www.think.no/ 55. 2009 Deloitte Internal Automotive Survey (U.S. and India) think/TH!NK-city conducted by Deloitte Consulting LLP. Survey of 991 U.S.-based 82. “Alternative Fuels - Lessons from Brazilia” NewCarBuyingGuide. Deloitte U.S. employees and 2,174 India-based Deloitte U.S. Com employees. March 2009. 83. Deloitte interview with Matt O’Leary, Director, Corporate 56. http://www.autokiste.de/psg/0903/7847.htm, Fahrzeugbestand Strategy, Ford Motor Company, August 4, 2009. 2009. 84. International Association for Natural Gas Vehicles. 2009. http:// 57. Frankfurter Allgemeine Zeitung, p. 13. June 22, 2009. www.iangv.org/tools-resources/statistics.html 58. Automobilwoche. June 30, 2009. 85. “Ethanol Flex Light Vehicles Manufacturing in Brazil. 2003 - 59. VCO, “Welche Potenziale Elektromobilität wirklich hat”. 2009. 2009”. Table from “Flexible-fuel vehicle”. Wikipedia. http:// 60. SZ, “Elektroautos von Renault kommen 2011“. June 29, 2009. en.wikipedia.org/wiki/Flexible-fuel_vehicle Stern, “Hoffnungsträger unter Hochspannung”. June 30, 2009. 86. “Elektronik im Automobil – Segen oder Fluch ?”. Prof. Dr. 61. “Zeit ist reif für E-Mobilität“. TÜV Süd. March 27, 2009. Reinhard Reimann, Duale Hochschule Baden-Württemberg 62. Frankfurter Allgemeine Zeitung. June 22, 2009. Mosbach March 21, 2007. 63. “How Volt’s cost rose and rose and rose ….”, Automotive News, 87. Mikroelektronik-Trendanalyse des Fachverbandes Electronic August 3, 2009. Components & Systems im Zentralverband Elektrotechnik- und 64. Die Welt, “Renault bringt den Kangoo mit Elektroantrieb“, Elektronikindustrie e.V. (ZVEI), 2008. July 1, 2009. 88. Deloitte interview with Matt O’Leary, Director, Corporate 65. Focus Elektroantrieb spielt erst 2020 eine Rolle“, June 16, 2009. Strategy, Ford Motor Company, August 4, 2009. 66. betterplace.com 89. 2009 People Management Practices Survey in the 67. Deloitte Interview with senior executive at FAW-VW, August Manufacturing Industry, conducted jointly by Deloitte Consulting 2009. (United States), the Manufacturing Institute, and Oracle. 68. “Obama schiebt Öko-Autos an”. FTD.de. June 24, 2009. 90. “Higher Education Bachelor's Degrees Conferred per 1,000 69. ”Elektroauto mit Subventionsantrieb”. FTD.de. July 1, 2009. Individuals 18–24 Years Old: 2005”. National Science Board. 70. German motor vehicle tax law §3d. January 2008. “Higher Education Bachelor's Degrees in Natural 71. Deloitte interview with Dr. Jerome Guillen, Director, Business Sciences and Engineering Conferred per 1,000 Individuals 18–24 Innovation, Daimler AG and Dr. Frank Spennermann, Senior Years Old: 2005”. National Science Board. January 2008. Manager, Business Innovation, Daimler AG. July 24, 2009. 91. “Managing The Talent Crisis In Global Manufacturing”. Deloitte 72. “Vancouver gives boost to electric cars”. The Globe and Research. June 2007. The Manufacturing Institute; Mail. July 12, 2009.http://www.theglobeandmail.com/news/ June 9, 2009. national/british-columbia/vancouver-gives-boost-toelectriccars/ 92. “Editorial: Rethinking science and math education”. Dallas article1215643/ Morning News. December 14, 2008. 73. “Convergence in the Automotive Industry“ p. 11. Deloitte 93. Deloitte interview with Ajay Seth, CFO at Maruti Suzuki (Germany). June 2009. July 13, 2009. 74. With the current U.S. electric grid, a plug-in hybrid would realize 94. Deloitte interview with a senior executive at VW China. a carbon footprint of approximately 110 g CO2 / km; Well-To- August 2009. Wheels Emissions Data For Plug-In Hybrids And Electric Vehicles, 95. Ibid. Sherry Boschert, 2006. 96. Deloitte interview with Matt O’Leary, Director, Corporate 75. “Gasoline prices around the world in late June”. Reuters. Strategy, Ford Motor Company. August 4, 2009. July 1, 2009. 97. “Managing the Talent Crisis in Global Manufacturing”. Deloitte 76. Deloitte interview with a senior executive at Hyundai China. Research. June 2007. August 2009. 98. Deloitte interview with RC Bhargava, Chairman, Maruti Suzuki 77. “Electricity Generation by Fuel”. International Energy Agency. India July 8, 2009. 2006. 99. ”Managing The Talent Crisis In Global Manufacturing”. Deloitte 78. “China Vies to Be World’s Leader in Electric Cars”. New York Research. June 2007. Times. April 1, 2009. 100. Deloitte interview with senior executive at Hyundai China, 79. Frankfurter Allgemeine Zeitung, p. 13, June 22, 2009. August 2009 80. Deloitte interview with a senior executive at BMW China. August 2009. 81. Various sources: “Toyota to Sell Tiny U.S. ‘Urban Commuter’ Battery Car by 2012”. Bloomberg. January 1, 2009. “Electro- Mobility: the powertrain of tomorrow? www.volkswagenag. de. June 2009. www.teslamotors.com. “Tesla Chairman Says His Company, Daimler to Launch Two Affordable EVs Soon; He Also Says Next-Generation Roadster Will Have Four Seats and Optional AWD”. The Green Car Advisor. Edmuns.com. June 2, 2009. “Nissan unveils "leaf" - the world's first electric car designed for affordability and real-world requirements”. Nissan web site. August 2, 2009. “Revealed: 2011 Nissan Leaf Electric Car”. Edmunds.com. August 1, 2009. “Renault bringt den Kangoo mit Elektroantrieb”. Welt Online. July 1, 2009. “Ford's ready-made electric car”. CNN Money. March 20, 2009. A new era Accelerating toward 2020 — an automotive industry transformed 29
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